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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is a partner at law firm Maurice Turnor Gardner
Lunching in late February with clients who had announced they were leaving the UK was hard, particularly because one of the couple had had a life-threatening illness and the other seemed very reluctant to go. They told me that the principal drivers were tax and fear of the direction of travel of the current government. I did not see it as my job to deter them from departing, but I did see it as my responsibility to challenge their decision and their choice of destination.
Most clients identify tax as the most important consideration when weighing up a move, smitten by the allure of no tax or low tax. But, for me, there are two fundamental questions: can you see yourselves living your life, not just existing, in your chosen jurisdiction? And, contrarily, are you prepared to live your life constrained by the UK’s tax rules? Or, as I put it to my clients, when you have had a brush with death, why abandon family, friends and home to save tax?
If you are considering relocating to a new jurisdiction, there are plenty of questions to ask that are not tax-based. The lawyer will focus on the structure of legal relationships, the economist on geopolitics and the generalist on whether this is a lifestyle you will enjoy. Moving is costly both in financial terms and also emotionally so should be carefully analysed.
With my lawyer hat on, I note that many of the countries on the desirable low-tax or no-tax list have very different regimes governing, among other things, relationships, matrimonial property, divorce and loss of capacity. These topics may not be top of clients’ minds, but they are crucial for a successful move.
What does “marriage” mean in the new jurisdiction? Many countries (but not all) now permit same-sex marriages or civil law partnerships. Some, such as Portugal, recognise de facto partnerships, which are very different from the UK, where “common-law marriage” does not exist, a widespread misconception. De facto marriage confers rights on partners that would not be recognised in the UK — an unwelcome surprise to an unmarried couple if the relationship unravels after the move.
Similarly, there is no concept of community property for married couples in the UK. If they move from the UK to Switzerland, a community-property country, they need to check what the impact is on their assets and they should probably execute a postnuptial agreement to ensure the status quo is preserved.
What happens if you lose mental capacity? As populations in the west grow older, more families are having to deal with parents losing decision-making capacity. The position in the UK can be managed by clients executing lasting powers of attorney for property and financial affairs and for health and welfare. It is similar in Switzerland, but this is not the case in many other civil law countries, where there is no such instrument.
What happens to assets on death? Most civil law countries have a regime we call forced heirship: the children have fixed rights and to that extent parents cannot disinherit them. The EU introduced legislation that mitigates this feature by permitting the deceased’s law of nationality to govern their estate, but the person making the will has to elect for this to happen — it does not happen automatically.
By contrast, Irish law guarantees a surviving spouse a fixed share of the estate. We had a client who owned a landed estate there and we were advised his wife would be entitled to a one-third share on his death. She had to renounce her legal right to that share so that the overall estate plan could be fulfilled.
Finally, and in my view, most importantly, can you see yourself living there? What is it that makes your life joyful and will you find it in your chosen jurisdiction? My passion is theatre, ballet and opera. I am told London has more than 230 theatres. Where else could compete?
One client on a Zoom call 18 months into his relocation complained he was miserable because none of the local population were interested in forming new friendships. He had cracked the language and endeavoured to mix but without a dog or a child it was hard to make connections. No one was interested in the arrival in their community of yet another expat. I was blamed because he claimed I had forced him to leave the UK. I had not!
My lunch guests left the UK before the end of the tax year on April 6. They had done their due diligence and set great store by the lifestyle offered by their new home. But they are now condemned to a life of day-counting.